California Legislative Analyst OKs mortgage settlement cash shift

By Marc Lifsher

May 22, 2012 12 AM PT

SACRAMENTO -- Part of California’s share of a national legal settlement with five big mortgage banks can be used to help fill a $15.7-billion hole in the governor’s proposed budget, the state Legislature’s non-partisan policy advisor recommended.

The Legislative Analyst’s Office on Tuesday reported that the $411 million should be used for a variety of general purposes in the current spending year and the one that begins July 1.

Atty. Gen. Kamala D. Harris, who reached the settlement with other state chief law officers, wanted to use about one-tenth of the $411 million to defray her department’s legal costs and the balance on mortgage-related financial counseling and education.

The bulk of California’s share of the settlement money, $17.6 billion, is not being sought by Gov. Jerry Brown. The funds are earmarked to provide direct benefits to homeowners trying to lower payments on their mortgages. It also will cover damages for borrowers who were unfairly or illegally foreclosed upon during the recession of 2007-09 and its aftermath.

But Brown announced that he wants to use the $411 million to pay interest on housing bonds and to fund housing anti-discrimination programs.

In a report to lawmakers, the analyst’s office report stressed that grabbing the settlement money “makes sense given the state’s fiscal situation” because “the settlement provides damages that were awarded directly to the state that are not being held in trust for particular individuals.”

The attorney general understands the governor’s budget problems but objects to shifting some of the money away from counseling, said Harris spokeswoman Lynda Gledhill.

“California homeowners need more help, not less,” she said.

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